When does the §5.016 7-day notice apply?

§5.016 applies to any sale of residential real property that will be encumbered by a recorded lien at the time of conveyance. The classic case is a wraparound mortgage where the existing first lien remains in place and the buyer takes the property "subject to" the existing financing. The seller must deliver a separate 12-point-type written disclosure to the buyer and each lienholder on or before the 7th day before the earlier of conveyance effective date or contract execution. The buyer can rescind within the 7-day window. The notice is not required if the buyer obtains a title insurance policy insuring the transfer.

What is an executory contract for conveyance in Texas?

An executory contract for conveyance is a contract for the sale of real property in which title is not transferred at the time of contracting — typically a contract for deed or a lease-option exceeding 180 days. The seller retains legal title until the contract is paid off, while the buyer takes possession and makes payments. Executory contracts are heavily regulated under Subchapter D of Chapter 5 of the Texas Property Code (§§5.061-5.085) because of historical abuse of low-income buyers under contracts for deed.

What disclosures does §5.071 require?

§5.071 requires the seller of an executory contract to provide the purchaser, before the contract is signed, a written statement specifying: the purchase price and down payment, the interest rate, the dollar amount (or estimate) of interest over the term, the total of principal and interest, the late charge, and a statement that the seller cannot charge a prepayment penalty if the buyer pays off early. The disclosure is the consumer-protection centerpiece of the executory-contract regime.

How long does a Texas executory-contract buyer have to cancel without cause?

14 days from the date the contract is signed, under §5.074. This is separate from the §5.016 7-day rescission right (which applies only to lien-encumbered residential sales). The 14-day cancellation under §5.074 is a no-fault, no-reason-required cancellation right unique to executory contracts. It is a third consumer-protection layer on top of the pre-contract disclosure obligations and the §5.069(d) DTPA/rescission remedies for nondisclosure.

What are the consequences of failing to provide the §5.069, §5.070, or §5.071 disclosures?

Different sections govern different failures. Failure to provide §5.069 (property condition) disclosures triggers §5.069(d): a DTPA false-misleading-deceptive act under §17.46 of the Business & Commerce Code, plus the purchaser's right to cancel and rescind the executory contract and receive a full refund of all payments. Failure to record the contract within 30 days under §5.076 triggers §5.076(e) damages (capped at $500 per calendar year of noncompliance). Failure to provide the §5.077 annual accounting statement triggers §5.077's own liquidated damages framework. §5.080 itself provides that disclosures made by the seller's agent are deemed disclosures made by the seller. Common-law fraud and DTPA claims may also apply separately.

Do federal SAFE Act and Dodd-Frank rules apply to Texas seller financing?

Yes, when the seller-financer exceeds the relevant transaction thresholds. The SAFE Act requires licensing of mortgage loan originators (typically with a de minimis exception around 3 owner-financed transactions per year). Dodd-Frank ability-to-repay rules apply to "creditors" exceeding transaction thresholds. Texas real estate licensees handling seller-financed deals should know enough to recommend the seller obtain mortgage counsel when the structure approaches the thresholds — the licensee provides identification, not the compliance opinion.

Texas Seller Financing Disclosure — §5.016 7-Day Notice and Subchapter D Executory Contracts

TL;DR

Texas regulates seller-financed and lien-encumbered residential transactions through two distinct statutory regimes. Texas Property Code §5.016 applies to any sale of residential real property that will remain encumbered by a recorded lien at closing — typical of wraparound mortgages and some seller-financed deals. §5.016 requires the seller to deliver a separate written disclosure statement to the buyer and to each lienholder, in at least 12-point type, on or before the 7th day before the earlier of the conveyance effective date or the execution of a binding contract. The buyer has a right to rescind within that 7-day window. Texas Property Code §§5.061-5.085 (Subchapter D) regulates "executory contracts for conveyance" — contracts for deed, lease-options exceeding 180 days, and similar arrangements where title transfer is delayed. Executory-contract sellers must comply with disclosure obligations under §5.069 (property condition), §5.070 (tax and insurance), and §5.071 (financing terms), all delivered before the executory contract is signed. Other §5.061-.085 obligations include §5.076 (recording within 30 days), §5.077 (annual accounting statement), §5.074 (buyer's 14-day right to cancel for any reason), and §5.072 (oral agreements prohibited). Failure to provide the §5.069 disclosures is itself a DTPA-actionable false/misleading/deceptive act and entitles the purchaser to cancel and rescind the contract with a full refund (§5.069(d)); §5.077 has its own liquidated damages for failure to deliver the annual accounting statement. Both regimes coexist with federal regulations — including SAFE Act licensing for seller-financers and Dodd-Frank ability-to-repay rules — that apply when the seller-financer crosses statutory thresholds.

Two Statutory Regimes, Different Triggers

Texas seller-financing disclosure is governed by two parallel regimes that apply to different transaction structures and have different procedural requirements. A Texas real estate licensee handling any non-standard residential transaction — wraparound mortgage, contract for deed, lease-option, or any sale where the seller is taking back financing — needs to understand which regime applies.

Regime 1 — §5.016, the 7-day notice for lien-encumbered residential sales. §5.016 applies whenever residential real property will be conveyed subject to an existing recorded lien — typically because the buyer is taking the property "subject to" the existing mortgage, or a wraparound mortgage is being created with the existing lien remaining in place. §5.016 is the rule that protects the buyer from buying into a property where the existing lender may exercise a due-on-sale clause or where the existing lien's terms are unfavorable.

Regime 2 — §§5.061-5.085, Subchapter D of Chapter 5 of the Property Code, governing executory contracts for conveyance. An executory contract is a contract for the conveyance of real property in which title is not transferred at the time of contracting — the classic "contract for deed" structure, where the buyer makes monthly payments and the seller retains legal title until the contract is paid off. Subchapter D also applies to lease-option agreements lasting more than 180 days, and to any rent-to-own or similar arrangement that delays title transfer beyond a routine closing timeline.

The two regimes are not mutually exclusive. A wraparound mortgage typically triggers both §5.016 (existing lien) and Subchapter D (if it's structured as an executory contract). Many Texas seller-financing deals trigger only one regime, but it's the licensee's responsibility to identify which apply. Both regimes operate independently of the standard §5.008 seller's disclosure notice obligation, which applies to virtually every residential transaction regardless of financing structure.

§5.016 — The 7-Day Notice for Lien-Encumbered Residential Property

Texas Property Code §5.016 prohibits a person from conveying — or entering into a contract to convey — an interest in residential real property that will be encumbered by a recorded lien at the time of conveyance, unless specific disclosure requirements are met.

The required disclosure must be:

Delivered on or before the 7th day before the earlier of: (1) the effective date of the conveyance, or (2) the execution of an executory contract binding the purchaser to purchase the property, or any option or other contract that binds the purchaser.
Delivered to both the purchaser and each lienholder. This is a separate, distinct delivery requirement — the disclosure must go to the buyer and to every recorded lienholder on the property.
In a separate written disclosure statement in at least 12-point type. The statute requires a stand-alone document, not a clause buried within the contract, and prescribes the minimum type size for legibility.

The disclosure must contain:

Identification of the property and the name, address, and phone number of each lienholder.
The amount of the debt secured by each lien.
The terms of any contract or law under which the debt was incurred, including the rate of interest, payment schedule, maturity date, and remedies on default.
Whether the lienholder has consented to the transfer of the property to the purchaser. (Lender consent under a due-on-sale clause is rare in practice — this is the §5.016 rule that surfaces the lender-due-on-sale issue.)
The details of any insurance policy required to be maintained on the property.

The buyer's express §5.016 remedy is the right to terminate the contract within 7 days after receiving the notice. §5.016 explicitly provides that a violation does not invalidate the conveyance — once title transfers, §5.016 does not unwind it. But §5.016 also explicitly preserves other remedies: the termination right exists "in addition to other remedies provided by this section or other law." So while §5.016's contract remedy is the 7-day termination right, other claims (common-law fraud, DTPA, breach of contract) may exist depending on the facts.

§5.016(c)(10) title-insurance exception: §5.016 does not apply where the purchaser obtains a title insurance policy insuring the transfer of title to the real property. In practical effect, this means a transaction with full title insurance can dispense with the 7-day notice. The exception is a workaround for sophisticated transactions where the buyer is protected by title insurance against undisclosed liens.

Executory Contracts — Subchapter D Disclosure Cascade

Executory contracts for conveyance — most commonly contracts for deed — are heavily regulated under Subchapter D of Chapter 5 of the Property Code. The regulations are the legislative response to decades of abuse in which low-income buyers entered into contracts for deed under terms that allowed sellers to keep both payments and the property on the slightest default.

Before an executory contract is signed by the purchaser, the seller must comply with three core disclosure obligations:

§5.069 — Seller's Disclosure of Property Condition

§5.069 imposes a bundle of pre-contract disclosure obligations distinct from the §5.008 OP-H notice (which governs ordinary residential sales). Before the executory contract is signed by the purchaser, the seller must provide:

A survey completed within the past year, or a plat of a current survey of the real property (§5.069(a)(1)).
A legible copy of any document describing an encumbrance or other claim affecting title — including restrictive covenants and easements (§5.069(a)(2)).
A written property-condition notice attached to the contract, in the form substantially similar to the one prescribed by §5.069(a)(3). The prescribed form itself contains within it the title-abstract and owner's-title-policy advice notices that historically were the consumer-protection centerpiece of §5.069.

§5.069(b) adds a related obligation when the property is not in a recorded subdivision: the seller must provide a separate disclosure form stating that utilities may not be available until the subdivision is recorded as required by law. §5.069(c) imposes an advertisement-disclosure requirement for the availability of water, sewer, and electric service.

§5.069(d) is the remedy provision: a seller's failure to provide the §5.069 information is (1) a false, misleading, or deceptive act under §17.46 of the Business & Commerce Code (the DTPA), and (2) entitles the purchaser to cancel and rescind the executory contract and receive a full refund of all payments made to the seller. §5.069(e) preserves the purchaser's separate DTPA remedies for any other false, misleading, or deceptive acts.

§5.070 — Seller's Disclosure of Tax Payments and Insurance Coverage

The seller must provide:

A tax certificate from the collector for each taxing unit that collects taxes on the property — under §31.08 of the Texas Tax Code.
A legible copy of any insurance policy, binder, or evidence of insurance indicating the name of the insurer, the amount of coverage, the type of coverage, the name of the loss payee, and the date of expiration.

§5.071 — Seller's Disclosure of Financing Terms

The seller must provide a written statement specifying:

The purchase price and any down payment required.
The interest rate.
The dollar amount (or estimate, if the interest rate is variable) of the total interest to be paid over the term.
The total amount of principal and interest to be paid under the contract.
The late charge, if any, that may be assessed.
The fact that the seller may NOT charge a prepayment penalty if the buyer elects to pay off the contract early.

The §5.071 financing disclosure is the consumer-protection centerpiece of the executory-contract regime — it forces sellers to present the true total cost of the financing arrangement in a transparent format the buyer can evaluate.

Other Subchapter D Obligations

Beyond the pre-contract disclosure cascade, several additional obligations apply throughout the life of the executory contract:

§5.072 — Oral agreements prohibited. The executory contract must be in writing and is the final agreement between the parties. Prior, contemporaneous, or subsequent oral agreements are unenforceable.
§5.074 — Purchaser's right to cancel without cause. The purchaser has a 14-day right to cancel the executory contract without cause from the date the contract is signed. The 14-day cancellation right is a separate consumer protection layered on top of the disclosure obligations.
§5.076 — Recording requirement. Since 2005, the seller must record the executory contract (including the attached disclosure statement) in the county real property records within 30 days after the contract is executed. Pre-2005 contracts for deed were typically off-record and unrecorded, leaving buyers unable to establish their interest in the property — recording fixes that.
§5.077 — Annual accounting statement. The seller must provide the purchaser an annual statement showing the amount paid under the contract, the remaining amount owed, the number of payments remaining, the amount paid in taxes on the property during the prior year, and the amount paid for insurance on the property during the prior year. Failure to provide the annual statement triggers statutory liquidated damages.
§5.080 — Liability for disclosures. §5.080 provides that for purposes of Subchapter D, a disclosure made by the seller's agent is a disclosure made by the seller — so the seller cannot disclaim responsibility for the agent's disclosures (or omissions) when the agent has acted in that capacity. Note: §5.080 does not itself set out the damages schedule that applies to disclosure failures. The remedies for failure to provide the §5.069 disclosures live in §5.069(d) (DTPA action and cancel/rescind/refund), the recording-violation damages live in §5.076 (capped at $500 per calendar year of noncompliance under §5.076(e)), and the annual-statement remedies live in §5.077 (including per-day liquidated damages for sellers conducting two or more transactions in a 12-month period). Common-law fraud and standalone DTPA claims may also apply separately.
§5.085 — Fee simple title. The seller must hold fee simple title (without disqualifying liens or encumbrances) before entering into an executory contract for more than 180 days. The buyer must be given a written acknowledgment and consent for any liens not paid off at the time the contract is signed. (Fee simple status interacts with the seller's Texas homestead status — homestead conveyances by a married seller require spousal joinder regardless of which spouse holds record title. For the underlying conveyance mechanics, see our guide on Texas deeds and title transfer.)

Federal Layers — SAFE Act and Dodd-Frank

Texas seller-financing transactions can also trigger federal regulatory obligations on top of the state requirements. The two most important are:

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act of 2008). The SAFE Act requires licensing of "mortgage loan originators" — individuals who take residential mortgage loan applications for compensation. Texas has implemented the SAFE Act through state licensing administered by the Texas Department of Savings and Mortgage Lending. Most one-off seller-financing transactions by private homeowners fall within the de minimis exception — typically up to 3 owner-financed transactions per year by the same seller, depending on the specific exemption framework. But sellers who routinely seller-finance — flippers, investors holding multiple properties, mom-and-pop note investors — may need licensing.

Dodd-Frank ability-to-repay (ATR) rules. The Dodd-Frank Act (15 U.S.C. §1639c) requires creditors making residential mortgage loans to verify the borrower's ability to repay. The ATR rule applies to "creditors" that exceed specific transaction thresholds. Like the SAFE Act, casual seller-financers under the threshold are typically exempt; routine seller-financers are not.

Texas real estate licensees are not expected to provide compliance opinions on SAFE Act or Dodd-Frank thresholds — that's the role of mortgage counsel. But licensees handling seller-financed transactions should know enough to recommend the seller obtain compliance counsel when the transaction structure pushes toward the thresholds. For the broader licensee-supervision framework, see our companion guide to TREC broker supervision under 22 TAC Ch. 535.

Practical Compliance Patterns

For Texas licensees, the recurring patterns to identify are:

Wraparound mortgages. Existing lien remains + seller carries a new note "wrapping" the existing payment. Triggers §5.016 7-day notice if residential. Often also triggers Subchapter D if structured as an executory contract.
Contracts for deed. The classic Subchapter D transaction. Triggers all §5.069/.070/.071 disclosures, §5.072 oral-agreements rule, §5.074 14-day cancellation right, §5.076 recording, §5.077 annual statement, §5.069(d) DTPA-and-rescission remedies for disclosure failures, and §5.080 attribution of agent disclosures to seller.
Lease-options over 180 days. Under §5.062, a lease-option of more than 180 days is treated as an executory contract and pulls into Subchapter D.
Lease-options under 180 days. Generally outside Subchapter D, but the underlying sale at the end of the option period may still need standard §5.008 OP-H disclosure.
Conventional sale + seller second. Buyer obtains conventional first-mortgage financing; seller carries a second-lien note. Typically not subject to §5.016 (no existing lien remaining) and not subject to Subchapter D (title transfers at closing). Standard §5.008 disclosure governs, along with the usual earnest money deposit and escrow framework.

The licensee's role is identification, not compliance opinion: identify which regime applies, recommend the seller obtain counsel for the documentary work, and ensure the standard disclosures (§5.008 OP-H, for any residential transaction with one dwelling unit) are properly delivered. Misclassifying a transaction — for example, treating a contract for deed as an ordinary sale and skipping Subchapter D disclosures — creates significant liability for the seller and reputational risk for the licensee.

FAQ

When does the §5.016 7-day notice apply?: §5.016 applies to any sale of residential real property that will be encumbered by a recorded lien at the time of conveyance. The classic case is a wraparound mortgage where the existing first lien remains in place and the buyer takes the property "subject to" the existing financing. The seller must deliver a separate 12-point-type written disclosure to the buyer and each lienholder on or before the 7th day before the earlier of conveyance effective date or contract execution. The buyer can rescind within the 7-day window. The notice is not required if the buyer obtains a title insurance policy insuring the transfer.
What is an executory contract for conveyance in Texas?: An executory contract for conveyance is a contract for the sale of real property in which title is not transferred at the time of contracting — typically a contract for deed or a lease-option exceeding 180 days. The seller retains legal title until the contract is paid off, while the buyer takes possession and makes payments. Executory contracts are heavily regulated under Subchapter D of Chapter 5 of the Texas Property Code (§§5.061-5.085) because of historical abuse of low-income buyers under contracts for deed.
What disclosures does §5.071 require?: §5.071 requires the seller of an executory contract to provide the purchaser, before the contract is signed, a written statement specifying: the purchase price and down payment, the interest rate, the dollar amount (or estimate) of interest over the term, the total of principal and interest, the late charge, and a statement that the seller cannot charge a prepayment penalty if the buyer pays off early. The disclosure is the consumer-protection centerpiece of the executory-contract regime.
How long does a Texas executory-contract buyer have to cancel without cause?: 14 days from the date the contract is signed, under §5.074. This is separate from the §5.016 7-day rescission right (which applies only to lien-encumbered residential sales). The 14-day cancellation under §5.074 is a no-fault, no-reason-required cancellation right unique to executory contracts. It is a third consumer-protection layer on top of the pre-contract disclosure obligations and the §5.069(d) DTPA/rescission remedies for nondisclosure.
What are the consequences of failing to provide the §5.069, §5.070, or §5.071 disclosures?: Different sections govern different failures. Failure to provide §5.069 (property condition) disclosures triggers §5.069(d): a DTPA false-misleading-deceptive act under §17.46 of the Business & Commerce Code, plus the purchaser's right to cancel and rescind the executory contract and receive a full refund of all payments. Failure to record the contract within 30 days under §5.076 triggers §5.076(e) damages (capped at $500 per calendar year of noncompliance). Failure to provide the §5.077 annual accounting statement triggers §5.077's own liquidated damages framework. §5.080 itself provides that disclosures made by the seller's agent are deemed disclosures made by the seller. Common-law fraud and DTPA claims may also apply separately.
Do federal SAFE Act and Dodd-Frank rules apply to Texas seller financing?: Yes, when the seller-financer exceeds the relevant transaction thresholds. The SAFE Act requires licensing of mortgage loan originators (typically with a de minimis exception around 3 owner-financed transactions per year). Dodd-Frank ability-to-repay rules apply to "creditors" exceeding transaction thresholds. Texas real estate licensees handling seller-financed deals should know enough to recommend the seller obtain mortgage counsel when the structure approaches the thresholds — the licensee provides identification, not the compliance opinion.

Bottom Line

Texas seller-financing disclosure breaks into two regimes. §5.016 imposes a 7-day notice for any residential sale that will remain encumbered by an existing recorded lien — wraparound mortgages being the typical trigger. The notice must be delivered to the buyer and each lienholder in 12-point type at least 7 days before the earlier of conveyance or contract execution. The §5.016(c)(10) title-insurance exception dispenses with the notice for transactions where the buyer obtains title insurance. Subchapter D of Chapter 5 (§§5.061-5.085) governs executory contracts for conveyance — contracts for deed and lease-options over 180 days — and imposes a cascade of pre-contract disclosures (§5.069 property condition + §5.070 tax/insurance + §5.071 financing terms), ongoing obligations (§5.072 oral agreements prohibited, §5.074 14-day buyer cancellation, §5.076 recording within 30 days, §5.077 annual accounting statement), and §5.069(d) DTPA-actionable remedies for nondisclosure (full rescission and refund), §5.076(e) recording-violation damages (capped at $500 per calendar year), and §5.077 annual-statement remedies. Federal SAFE Act licensing and Dodd-Frank ability-to-repay rules add another layer for sellers who exceed transaction thresholds. For licensee fiduciary duties and supervision obligations that apply throughout these transactions, see our TREC broker supervision guide.

Source: Texas Property Code §5.016 — Conveyance of Residential Property Encumbered by Lien · Texas Property Code Chapter 5, Subchapter D — Executory Contract for Conveyance (§§5.061-5.085) · Texas Department of Savings and Mortgage Lending — SAFE Act Implementation